“Until the start of the Industrial Revolution in the 18th and 19th centuries, human society maintained a more or less sustainable relationship with nature. However, with the beginning of the industrial era, traditional ways of life, containing both ethical and environmental elements, were replaced by the money-centered, growth-oriented life of today, from which these vital elements are missing.

According to Adam Smith (1723-1790), self-interest (even greed) is a sufficient guide to human economic actions. The passage of time has shown that Smith was right in many respects. The free market, which he advocated, has turned out to be the optimum prescription for economic growth. However, history has also shown that there is something horribly wrong or incomplete about the idea that individual self-interest alone, uninfluenced by ethical and ecological considerations, and totally free from governmental intervention, can be the main motivating force of a happy and just society. There has also proved to be something terribly wrong with the concept of unlimited economic growth".

Comments
It is not clear whether John Scales Avery garnered his information about Adam Smith’s from his published works, Moral Sentiments (1759) and Wealth Of Nations (1776). Both went through six editions to 1790, let alone whether he read student notes of Smith’s Lectures on Jurisprudence (1762) and Lectures on Rhetoric and Belles Letters (1763) or, indeed, if John has read Ian Simpson Ross’s, The Life of Adam Smith, 2nd edition 2010. Or did he read a modern account of Adam Smith and took note only of whatever quotations it displayed, or myths it repeated, by an author who knows little more than John Scales Avery displays?

The “traditional ways of life, containing both ethical and environmental elements” apparently lauded by John Avery are not something that he would choose to return to in the mistaken belief that those so-called happy days were ended “with the beginning of the industrial era”. Has John Avery no knowledge of human history long millennia before the “18th and 19th centuries? Living at one with nature may not be the utopia that he hankers after. He can always travel from where he is in the world to live closer to the era before markets, such as in Niger, or other parts of hungry Africa, and anywhere where sustenance has to be satisfied on less than the equivalent of $3 a day in such as the upper Amazon.

And as for ‘peace journalism’, the pre-agricultural era of hunter-gatherers was nowhere a peaceful haven of tranquility with levels of violence per capita exceeding the most blood-letting urban decay of modern ‘civilisation’, even adding in the global wars and state violence (Nazi and Soviet) of the 19th-20th centuries.

Paul Scales Avery repeats the canard that “According to Adam Smith (1723-1790), self-interest (even greed) is a sufficient guide to human economic actions.” That this is absolutely not the case has escaped Avery’s notice. He merely repeats what he has been told by modern economists, for Adam Smith said no such thing. It is an invention. There may be two other sources for this assertion, Bernard Mandeville “Private Vices, Public Benefits” (1724, when Adam Smith was aged 1) and Ayn Rand, a once fashionable philosopher among undergraduates (“The Virtue of Selfishness”) in the 1970s.

Smith dismissed Mandeville’s philosophy in Moral Sentiments as “licentious”. He also made clear that moral man and woman was a social person reflecting society’s “mirror” that judged his or her conduct and acted to restrain it from selfishness and impropriety (that enabled us to “see ourselves as others see us” (Robert Burns).

The much-misquoted passage in Wealth Of Nations about the “butcher, brewer, baker” selling the ingredients for our dinner (18th-century style), instead of advocating, as is asserted ad nauseam that Smith’s advice is to be ‘selfish’, it illustrates in fact our need to mediate our self-interests by “addressing their self-love, and never talk to them of our necessities but of their advantages” (WN I.ii.2 27).

Two selfish bargainers would never agree to a bargain by insisting that their own self-interests were met in full (which is indeed the selfish position).

It was not just “history” that showed “that there is something horribly wrong or incomplete about the idea that individual self-interest alone” was sufficient. Adam Smith made that very same point in 1776. He cannot be blamed for the misreading and non-reading of his Work in the 21st century by John Scales Avery and many others!

“Yesterday I shared my momentous decision to become a libertarian, influenced by the inspiring example of young people across the nation brave enough to live every aspect of their lives by the law of the invisible hand, even if that hand is cloaked in an Ermine glove that occasionally sticks its thumb up their asses.”

Wednesday, March 28, 2012

"The metaphysics in the theory of Adam Smith compared with modern economics"

A graduate student’s posts his Master’s thesis, which from the abstract is probably of some interest to Lost Legacy. The abstract below summarises the thesis, into which the student has put a lot of work, covering the problems posed by “general equilibrium” ((Kenneth J. Arrow, Frank Hahn, and Gerard Debreu) counter-poised to the “self-organizing economy” (Friedrich A. Hayek, Thomas Schelling, and Paul Krugman).

Copenhagen Business School Student Thesis is HERE“The invisible hand: The metaphysics in the theory of Adam Smith compared with modern economics” by Joakim Kromann Rasmussen.

Abstract: “This thesis shows how the metaphysical foundation in Adam Smith’s theory is reflected in modern economic theories. It is shown that the question of order is the main economic problem for Smith as well as the modern economists. With this question in focus, Smith’s philosophy is synthesized and reinterpreted. Upon this reading of Smith, a comparison is made to two modern economic positions: general equilibrium theory (Kenneth J. Arrow, Frank Hahn, and Gerard Debreu) and theories on the self-organizing economy (Friedrich A. Hayek, Thomas Schelling, and Paul Krugman). In this regard, the thesis is a philosophical interpretation of Smith’s works emphasizing the idea of the invisible hand and the metaphysical foundation in his theory: an interpretation juxtaposed with two stances in modern economic theory in order to unravel how the metaphysics in Smith’s works still finds an expression in modern economic thinking. The analysis falls into three parts. While the two first parts make up the interpretation of Smith, the third part makes up the comparative analysis. In the first part it is shown how Smith deals with the question of order in his works, as when he argues that humans qualifies epistemologically by organizing the events they meet, that humans at a social level strive for the sympathy of others to stabilize the social life, and how the market organizes resources for the common good. While many Smith scholars have interpreted his theory secularly, within the last fifteen years there have been attempts to interpret his theory nonsecularly. Under the influence from this research, a nonsecularized interpretation of Smith finds its way in the second part of the thesis. This part shows that the secular elements in Smith’s theory stand forth more consistent in light of the theological subject of providence. In the third part, Smith’s basic assumptions are compared with assumptions set forth in the two economic positions. This part shows how the question of order has influenced modern economic theory, and further, how the idea of the invisible hand, in a secularized form, still haunts modern conceptions of economic theory.”

CommentI have downloaded Joakim Kromann Rasmussen’s thesis and I shall read it over the next few days (follow the link).

My comments will follow and my emphasis shall be on offering helpful comments, rather than a robust critique. We can always learn something new, so I have an open mind. Many of my posts on Lost Legacy have covered similar ground.

At present, I am reviewing Daniel B. Klein’s new book, “Knowledge and Co-ordination: a liberal interpretation”, Oxford University Press, which is instructive, as well as stretching, taking me into new areas of discourse. It is too early to say whether I agree or am satisfied with Daniel’s theses. In so far as his book provides a glimpse into Daniel’s deeper thinking, I find that prospect tantalizing, because I find his stance in our earlier debates (2009-10) on Adam Smith's use of the invisible hand metaphor baffling, because he ignores how Smith taught about the role of metaphors in the English language in 1763 (Lectures on Rhetoric and Belles Lettres, Oxford and Liberty Fund).

Saturday, March 24, 2012

James Otteson on Socialism and China

“A small group attended a presentation by James R. Otteson, joint professor of philosophy and economics and chair of the philosophy department, Yeshiva University, New York. His third book, is titled “The End of Socialism.”

“Otteson thinks that capitalism is quite unnatural [reports Angela Acton]. Society sees capitalism as a way of getting what we need or what we want, but in itself, could socialism be morally superior to capitalism? Every time capitalism has been attempted, it has succeeded. Every time socialism has been tried, it has failed.

Yet Otteson [reports Angela Acton] still believes that people want socialism. He believes that society’s indecision explains why we have an instinctive suspicion of the system. “And the reason for [our suspicion] is because I think it is contrary to some of our deeply held and fundamentally natural ways of thinking. In fact, I think it is so strange and unnatural that when it succeeds at its goal of increasing material prosperity, it still faces an instinctive distrust. What I would like to suggest is that the [feelings] we have toward capitalism [are] at least partly a result of it being contrary to some of our deeply held natural information,” Otteson said.

Otteson believes there is a missing piece to the puzzle. He raises the question of whether or not legal institutions are enough. There have been institutions in history that were very similar, but we did not see the industrial revolution then, or an explosion of wealth.

“If you were alive in the year 1000, surveying the world, and someone said to you [that] there is a place in the world that in 1000 years will have unprecedented levels of wealth, what would you have guessed it would be? You would not have said the tiny little island of England or Scotland. That would not have even been on the radar. It would have been China,” Otteson said.He went on to say that China already had a sophisticated culture in many ways. They had extensive trade routes, inventions and technological innovations, yet the average level of wealth did not really budge. It did not push the needle and that had surprised him. So there must be something else going on.

Otteson talked a little about the Occupy movement. He believes this is an instance of people worrying because some people are getting wealthy at significantly different rates than others. “We live in something like a capitalistic society, with enormous wealth, but the comparisons of wealth are not the same. All aspects of our lives are different than what they were in revolutionary times. Nevertheless, when we see someone who has a lot more than us, the first thought is that there is something wrong,” Otteson said.

CommentIt would be unfair to draw any conclusions from a report of Jim Otteson’s speech, “The End of Socialism”, in a student publication. Hence I won’t.

It must be a fairly selective audience of people who “believes that people want socialism”. That is not to say that nobody “wants socialism”. Remnants of the Cold-War broad left might still hanker after something called “socialism”, and some who have a residual, if romantic, hankering after Karl Marx, but among broad swathes of the population it is a decisive ‘no’.

Of course, recent shocks to the banking system, deficit crises in public accounts, and media labels of “austerity’, all contribute to prompting public anxiety, at least among opinion formers, and legitimizes chatter like: ‘Marx Was Right”. But that’s a long way from showing a road to socialism. And regular media images of North Korea (a socialist system of real austerity), or tv reports of striking Chinese workers and of dispossessing peasants from their small-holdings to make way for Hydro dams, factories and luxury apartments, remind the poor in capitalist countries of the dead-end of the supposed socialist alternative as offered by grey-haired, former Marxists.

I wonder about the parable of someone “alive in the year 1000, surveying the world, and another someone saying that “there is a place in the world that in 1000 years will have unprecedented levels of wealth, what would you have guessed it would be? You would not have said the tiny little island of England or Scotland. That would not have even been on the radar. It would have been China”. Now, I have great respect for Jim Otteson and his standing, which I share, among historians of Adam Smith’s works, but in the year 1000, not much was known in Europe about China – it took a couple of years to get there from Venice (Marco Polo), and the same to get back, and the country was so vast it would take a couple of years or more to travel round it, assuming the various authorities would let you do so. Even in Adam Smith’s times, China was still not too well known (it still took a year to sail from Europe to India, and longer still to visit China).

We know now that China was a great power – an empire dominating the region from East Africa and much of the Pacific – and that its governing elite was of long pedigree. Chinese peasantry were 'down trodden" to a high degree and chronically in debt servitude in small plots or landless. Its technology and its science, its early inventions of much that was unknown, as yet, in Europe, and its distance to travel as an economy to the industrial revolution, then only decades away from England and Scotland, was so close and had been for centuries. So what went wrong?

The answer lay in its lack of the social mores (freedom to do so) of commercial society and the incentives to apply innovations. These mores were almost totally absent, and indeed were repressed in the choking political system of Chinese totalitarianism. Sad. For China, and for the backward world, by delaying the earlier spread cross the world to today’s remarkable advances, the history we know took its slower course. Imagine, the impact on the world of four or more centuries of the industrial revolution and the inevitable democratic political revolution, if it had started and had revolutionized old China from the 12-15th century!

Deirdre McCloskey shows in her brilliant two volumes, The Bourgeois Virtues and Bourgeois Dignity (Chicago, 2006, and 2010) the vital missing elements preventing marketing economies from turning localized markets into national and international industialised markets that were ever present in China. So despite China's remarkable advances technologically, for the clear reasons that the Chinese (and much of 16th-18th century Europe), its political systems would not allow the necessary lower-level work of enterprising entrepreneurs to flourish. But in self-sustaining and self-reproducing that would make the difference, it happened, however, in the ‘little island” of Britain, off Northwestern Europe, from the 16th century onwards.

Now, Jim Otteson knows that, but the student reporter may not have appreciated their significance to report it, so I would not dream of implying that Jim should be criticized as if he didn’t know. I am sure the students got a lot out of attending Jim Otteson’s talk.

Friday, March 23, 2012

The Brutal Reality of Changing Everything

Don Boudreaux of Café HayekHERE posts a short reminder of the 20th anniversary of Hayek’s death. He quotes from page 133 of Hayek’s last book, his 1988 The Fatal Conceit:

“Life exists only so long as it provides for its own continuance. Whatever men live for, today most live only because of the market order. We have become civilized by the increase of our numbers just as civilization made that increase possible: we can be few and savage, or many and civilized. If reduced to its population of ten thousand years ago, mankind could not preserve civilization. Indeed, even if knowledge already gained were preserved in libraries, men could make little use of it without numbers sufficient to fill the jobs demanded for extensive specialisation and division of labour.”

CommentEverybody should read Hayek at least once in their life – more often if possible, especially those who pontificate with breathless utopian naivety in favour of this or that complete change in the way the world is at present so that conforms to their particular irritation with whatever they agitate about, a.k.a. as “activism” or “occupying”.

Those who agitate in favour of a reduced population – or at least zero growth in it – for instance, should take note of Hayek’s assessment of the trade-off between the “few”, the norm before agriculture, and the “many”, the inescapable realities of commercial society.

Step forward the many billions already living who are perceived to be the ‘problem’, and be prepared to be eliminated somehow. This is an inevitable reality of the ‘there’s too many people’ living who are the targets of their activism. There are even more people likely to be living in the next fifty years and counting, which would require even more ambitious targets for culls in the post-growth nightmare that a strident few claim will be necessary.

Thomas Hutchison, the Talented Historian of Economics Who Sometimes Wrote Drivel

Paul Walker on Anti-dismal (‘Bog on all things to do with economics and related subjects’ - worth bookmarking) HERE ” “

"Hutchison on Smith”

‘The way Adam Smith evaluated the role of government in the economy is often misinterpreted. Recently I came across this comment by Terence Hutchison.

“However, The Wealth of Nations was, as Viner emphasised, 'an evaluating and crusading book', which sharply criticised existing society and government, and argued strongly for changes in national policy' (1968, p. 326). Smith was crusading, of course, against the excessive activities of monarchical, aristocratic and highly nationalistic governments, and for a greatly expanding role for the invisible hand.”

‘This view seems to argue for anti-government view of Smith (or at least an anti-government-as-Smith-knew-it view). But Hutchison then adds,

“At the same time Smith wanted to retain a wide-ranging economic agenda for government, the precise extent of which had to be decided by empirical, case-by-case studies. He would have rejected fundamentally any conjecture that the invisible hand, or any other system, could produce perfect efficiency for a real-world economy. In his ideas, thought and method, Smith abhorred the perfection, or extremes, which 'the man of system' sought so eagerly to promote.

Such a case-by-case method of evaluation looks somewhat like a Coaseian comparative institutional analysis approach."

CommentThis is a quality post that is typical of the sober thinking of Paul Walker, with whom, however, I should say I do not always agree in the nicest possible terms.

I would add that Smith’s “violent attack” (his words) of the commercial system of Europe can be interpreted as a critique of the activities of “of monarchical, aristocratic and highly nationalistic governments” but this does not amount to an “anti-government” stance, as some of today’s more extreme libertarians assert. Such governments dominated Europe, and Smith (and Hume) found this expressed in their “jealousy of trade” of rivals and their regular resort to wars to weaken potential trading partners, often at huge domestic cost, or also the pursuit of damaging, self-inflicted anti-trade policies of tariff protections and prohibitions. Smith (and Hume) favoured free trade among countries to enhance common opulence and domestic net capital productive investment.

Hutchison’s assertion that Smith “was crusading for a greatly expanding role for the invisible hand” is utter drivel. After all, I suppose, in was 1968, and neoclasssical economists worldwide had swallowed the sheer invention by Samuelson of Smith’s mythical role as a believer in the “selfish’ being" led by the invisible hand to better outcomes in society".

I was a final-year undergraduate in 1968 and read much Hutchison (on and off the syllabus), not always agreeing with his views, though his history of economics’ books were useful, including his “Review of Economic Doctrines from 1870” (I still have a copy).

The second paragraph quoted by Paul Walker is perfectly acceptable and at variance in tone with the first paragraph. Smith was a bit of a pragmatist from his study of the past to understand how we had arrived at the present. He was caustic, sometimes, of utopias, which I find helpful when assessing the fashion for those planning changes to capitalism for this or that end.

A Suggestion on Smithian Growth and the Division of Labour

“We consider a model in which appropriate organization fosters innovation, but because of contractibility problems, this bene t cannot be internalized. The organizational design element we focus on is the division of labor, which as Adam Smith argued, facilitates invention by observers of the production process. However, entrepreneurs choose its level only to facilitate monitoring their workers. Whether there is innovation depends on the interaction of the markets for labor and for inventions. A high level of specialization is chosen when the wage share is low. But low wage shares arise only when there are few entrepreneurs, which limits the market for innovations therefore and discourages inventive activity. When there are many entrepreneurs, the innovation market is large, but the rate of invention is low because there is little specialization. Rapid technological progress therefore requires a balance between these opposing effects, which occurs with a moderate relative scarcity of entrepreneurs and workers. In a dynamic version of the model in which a credit constraint limits entry into entrepreneurship, this relative scarcity depends on the wealth distribution, which evolves endogenously. There is an inverted-U relation between growth rates driven by innovation and the level of inequality. Institutional improvements have ambiguous effects on growth. In light of the model, we offer a reassessment of the mechanism by which organizational innovations such as the factory may have spawned the industrial revolution.”

This argument could be interesting, it certainly is promising. However, based on the abstract, I offer an observation.

The source material for Adam Smith’s ‘pin-factory’ (WN I.i.) was from France, which reported a case example involving 18 distinct sub-operations as quoted by Smith. He also mentions that he visited a small pin-maker (he doesn’t say where) employing 10 employees making the pins, some doing more than one operation.

This suggests that the sub-division of labour in the factory that he visited was not as sub-divided than the main French example, which is indicative that the spread of the division of labour is an uneven, possibly, innovative process, not a once-only outcome. That process continued until the pin-makingg process was fully automated into two factories in the UK, down, steadily through the19th and 20th century from many hundreds across the UK, producing the total domestic output. Similarly, in the USA, with computer-run plants and with operators supervising batteries of machines undertaking all the former 18 operations.

In the labourer’s common woollen-coat example, as given by Adam Smith, the link between the “high-level of specialisation” and the “wage share” and “few entrepreneurs” may need some revision. The woollen coat is far more representative of the deeper impact of the ancient principles of the division of labour (since early gatherer, pre-herder, pre-agricultural societies, after 11,000 years ago), than the simple arithmetical example of the pin factory.

The crisscrossing of often long supply chains of commercial societies are the endemic feature of post 15th-century experience that was captured by Smith in this example, and, with the technological advances of the post-17th–18th centuries, the supply chains of the market economies changed everything.

The supply chains have many links and the many, not necessarily related nor directly connected to each other, innovations prompt small changes, as given by Smith in the philosopher, who improved the 'fire engine' (a domestic coal fire) in processes, materials and products in the individual links, and these may have unexpected consequences on more than one product in the multiple chains and products that use that firm’s inputs. These may have little to do with wage rates or the number of entrepreneurs in the same industry. For example, the dye chemicals used in the labourers woollen coat were imported from distant foreign lands, so any of the minor changes in any of the inputs in the ships that carry the chemicals could lower unit costs for all the users (safer ships, larger cargoes, shorter journeys from better navigation, and so on).

Wednesday, March 21, 2012

Excellent Forthcoming Book on Adam Smith

Donald Rutherford, has written what surely must be recognised as the best accessible scholarly history of economics of 2012, which status, deservedly, will last for some years to come.

Donald Rutherford’s significant, well written, and original contribution does not tackle his historical themes in the usual manner of parading the ‘big names’ in a strict chronological sequence, in which readers tend to lose focus because remembering a large, multi-faceted debate across several important issues across several authors, across two centuries, is tiring. Instead, Rutherford tackles the entire sweep of the period from Adam Smith’s time through to Alfred Marshall, one major theme at a time in separate chapters on ‘Trade’, ‘Money’, ‘Public Finance’, ‘Condition of the People’, and ‘Economic Ideology’ in 335 pages. He covers a wider-range of relevant sources that is normal. They are evidence of Rutherford’s prodigious scholarship and complete mastery of his relatively not well-known sources.

By travelling back and forwards across time within each major theme and its sub-themes, Rutherford reveals the germination of competing ideas in the rich milieu within which they developed among Scottish authors and influenced the intellectual debates among Adam Smith’s successors. Moreover, Rutherford does this with a noticeable absence of distracting polemical rancour. He presents without comment, critical or otherwise, the views of the participants in short statements and occasional direct quotation, leaving readers to judge privately. This is refreshing and informative.

Rutherford prompts appreciation of the lively scholarly debate that occurred among Scottish economists in the two centuries he covers, and provides much for 21st-century economists to think about in current debates on the same themes – plus ca change …

“In a post earlier this evening, I said that anti-speculation frenzies dated from the 19th century. But they in fact date back much further. In Book IV, Ch. 5 of Wealth of Nations, Adam Smith analyzed the irrational attacks on commodity speculation:

“The popular fear of engrossing and forestalling [types of speculative activity outlawed in England] may be compared to the popular terrors and suspicions of witchcraft. The unfortunate wretches accused of this latter crime were not more innocent of the misfortunes imputed to them than those who have been accused of the former. The law which put an end to all prosecutions against witchcraft, which put it out of any man’s power to gratify his own malice by accusing his neighbour of that imaginary crime, seems effectually to have put an end to those fears and suspicions by taking away the great cause which encouraged and supported them. The law which should restore entire freedom to the inland trade of corn would probably prove as effectual to put an end to the popular fears of engrossing and forestalling.”

Sadly, I think that Smith’s belief that legalizing speculation would end attacks against it is quaint, but wrong. Indeed, it appears that the reverse is true: popular terrors and fears-stoked by opportunistic politicians eager to divert blame for high prices to others-lead to attempts to restrict speculation.

But Smith’s analysis of the counterproductive effects of these restrictions does stand the test of time. It is worth a read."

CommentIt is not clear to me why the ‘street-wise professor’ thinks Smith was both right and wrong on his suggestion that demands to suppress speculation was both right and wrong at the same time.

Smith considered that fears of engrossing and forestalling were grossly exaggerated. He compared them to the outrages against witchcraft, which in Scotland had been prevalent in the 17th-early 18th centuries, and caused considerable misery and bloodshed to wholly innocent old women. The last women burned to death in Scotland occurred in 1727. It was still in living memory as Smith grew up and for long afterwards, as was the last boy executed in Edinburgh on trumped up charges of blasphemy in 1695.

Old Scotland was not a safe and happy place to live if you were old or youthfully indiscrete. Hence, Smith and others took care not to offend the ignorant forces of superstition. His example of linking the idiocy of witchcraft to the “popular [mob] fear of engrossing and forestalling” was a device to deprive them of legitimacy. Witch-hunts died out with common shocks to their outcomes and laws to that affect. He hoped for a similar outcome in laws to punish demagogues instigating popular mobs against alleged “engrossing and forestalling” (which could easily destroy the very food they sought to ‘save’).

It was an opinion. That it "stood the test of time" seems to be a sufficient endorsement of his opinion, so what is the “streetwise professor” complaining about?

On the Road to Redemption?

He quotes August Heckscher essay, "Where Are the American Conservatives?" in which he declared “it to be as relevant today as when it was published in 1953”:

“The concept of a pure conservatism, its pattern ‘laid up in heaven’, was an illusion; it was in fact the same illusion that had possessed the Liberals and the Utopian democrats through the nineteenth century. That the conservatives should have fallen under its spell was particularly strange, for traditionally the conservatives mistrust an excessive rationalism—they know that the world moves by habit, by values, by inherited faith, quite as much as it moves by getting new ideas. The conservatives, when they are in their right mind, avoid tearing up the roots of something they do not like almost as instinctively as they avoid tearing up the roots of institutions and procedures of which they approve. The fact that American conservatives to so large a measure forgot, or never learned, this healthy prudence and this basic tolerance, I can only attribute to the fact that they had grown so uncontrollably angry. In attacking the New Deal they became inflexible in their thinking, unresponsive to the settled expectations and tacit consents of the great public; and they wanted instead to impose a doctrinaire program of their own.”

Scott Galupo adds:

“Replacing one's notion of Nanny with a sterner Daddy will not restore the prelapsarian paradise of Adam Smith's Invisible Hand and Friedrich von Hayek's Spontaneous Order—because those paradises never existed to begin with.”

CommentThis may be an example of someone waking up and realising that he cannot smell the coffee because there is none to smell.

Samuelson’s authoritative myth (and getting more authoritative through the following decades) of Adam Smith’s ‘selfish’ invisible hand that nevertheless miraculously benefitted society had hardly got the traction by 1953 that it was to acquire a few years from his highly successful textbook: Economics: an introductory analysis McGraw-Hill (1948) – achieving 5 million sales by 2010.

It took a little time for Samuelson’s, or his teachers’, oral invention to spread into western consciousness, as graduates across the world went out to teach on other campuses, or claim through the media and democratic politics that there was salvation in the optimism in markets, nowhere free, but freer in the ‘land of the free’ than in war-shattered Europe, and incomparably freer than the drab communist central-planning regimes of Soviet occupied states, and to a much lesser extent, in Western European social-democratic states and in their newly independent former colonial states of the British Empire.

The Soviets grabbed East European territory after World War 2, and their communist allies grabbed China, but all was not lost because the West had the “miraculous magic”, wrongly attributed to Adam Smith, of the “invisible hand” that worked its wonders in markets irrespective of the selfish motives of those who were “led” by it.

Those who wanted a “doctrinaire program of their own” found it in “Adam Smith’s invisible hand”, which the Soviets could not match, despite Oscar Lange’s attempt to portray central planners as doing the work of an invisible hand, but only ‘better’. Such unconvincing fantasies were of no avail compared to the success of post-war capitalism, supposedly with its genuine invisible hand in its markets.

Events showed the superiority of the democratic capitalist economies, particularly in the collapse of Soviet communism and the opening by communist China by aligning its imitative state producing for capitalist world markets. With the economic crisis in Western capitalist economies from reckless over spending and borrowing, their over confidence was challenged globally.

Scott Galupo reacts with his conclusion that “the prelapsarian paradise of Adam Smith's Invisible Hand” never existed. He’s right, but that truth was available to anybody who consulted Adam Smith’s Works and read the very limited contexts in which he used the metaphor (only twice in fact), and certainly he never associated it with the blank cheque of “selfishness” and the assertion that society automatically would be better off.

This last assertion, shouted everywhere in the US on every media, is contradicted in Adam Smith’s “Wealth Of Nations” , much as the “selfish” libel is contradicted in his “Moral Sentiments”. Smith laid into the selfish behaviours of “merchants and manufacturers”, many of whom acted directly contrary to the interests of consumers (tariffs, prohibitions, the anti-labour combination acts, settlement acts, the town guilds, apprentices acts, and all attempts at narrowing competition to raise prices).

It is a mystery beyond explanation why so many voices, even among academics, simultaneously believed in the myth of the selfish invisible hand and were unaware of the content (not just quotes from) Adam Smith’s two works.

I put it down to a form of collective amnesia much closer to a theology than to social science.

Monday, March 19, 2012

On Giving Credit to Adam Smith Where Due

Stuart Kelly writes “English literature, a Scot’s invention” in the Scotsman (29 March. It is an informative and mostly accurate account (follow the link). HERE

“Ironic though it might seem, the idea of English literature was a valid field of academic enquiry was a Scottish invention. This year is the 250th anniversary of the founding of the Regius Professorship of Rhetoric and Belles-Lettres at the University of Edinburgh, the precursor to “Eng lit” as we know it; although the story behind it is more complex, and peculiar, than simply the founding of a new scholarly discipline.

The first person to hold the chair was the Rev Hugh Blair. The son of a merchant, Blair was born in Edinburgh on 7 April, 1718. He graduated in moral philosophy, and became a minister in 1741, serving briefly in Collessie in Fife, before returning to Edinburgh to hold charges in the Canongate, Lady Yester’s Kirk and finally St Giles Cathedral.

David Hume described him in his letters as a “vain, timid, fussy, kind-hearted man that everybody liked”. While at Edinburgh, Blair studied under the professor of logic, John Stevenson, who lectured on literary style using English as well as classical sources. He wrote an essay “On The Beautiful” for Stevenson, which his tutor said displayed “a power of discrimination, and a correctness of feeling beyond what could have been expected of a youth but sixteen years of age”. Blair actually started teaching his class in Rhetoric and Belles-Lettres in 1759, and they proved so popular that George III endowed the chair (held today by Greg Walker).

Blair was not the first person to discuss vernacular literature in a university: Adam Smith, before he wrote on economics or the theory of moral sentiments had taught a similar class in Glasgow in 1751; although it was a “private” course and not part of the university’s official curriculum.”

CommentStuart Kelly is somewhat unkind to Adam Smith. The facts are slightly different and should be appreciated to see the real contribution made to what became 'Eng. Lit', as still taught in Scottish universities (I took a first-year compulsory course in my undergraduate degree at the University of Strathclyde).

Adam Smith delivered a series of lectures in Edinburgh from 1748-50. They were sponsored by Henry Home of Kames, a judge from 1752, and by James Oswald, a friend of Adam Smith and a MP in the Scottish Parliament 1707 and later the London Parliament. The audience ("a respectable auditory") was composed mainly of students of law and theology from Edinburgh University and adults from the professions, who paid to attend them, off campus. David Hume reported that Smith earned £100 a year for his lectures (a princely sum for an unemployed, recent student from Oxford University, 1740-46). They established his public reputation as a lecturers and played a role in his appointment as Professor at Glasgow University.

Smith’s lecture course was entitled: “Lectures on Rhetoric and Belles Lettres” (see Alexander Fraser Tytler, “Memoirs of the Life and Writings of the Honourable Lord Kames”, 1809). Smith knew and was a friend of Hugh Blair, and shared social hours with him in Edinburgh (1778-90). When Smith left for Glasgow, Lord Kames persuaded Blair to take up the “Rhetoric and Belles Lettres” freelance lecture series delivered by Smith from 1756, who gave him his manuscript of the lectures. It was from these lectures that Hugh Blair was appointed to the Regus Chair at Edinburgh University in April 1762, and he continued the popular Rhetoric course until he retired.

Blair published his lecture course as ”Lectures on Rhetoric and Belles Lettres, the title used by Smith. Blair correctly acknowledged his debt to Smith, his predecessor and friend, in developing his themes:

“of the General Character of style, particularly, the Plain and the Simple, and the character of the English authors classed under them, in this and the following Lecture, several ideas have been taken from a manuscript treatise on rhetoric, part of which was shown to me, many years ago by the learned and ingenious Author, Dr Adam Smith” (Blair, Lectures on Rhetoric and Belles Lettres, 1812, vol ii.22 n ).

I read some of Blair’s lectures and noted how similar is the structure of his arguments to Smith’s in his “Lectures on Rhetoric and Belles Lettres” [1763] 1983. A full account of Smith’s rhetoric lectures is given in Ian Ross’s excellent and definitive biography, “The Life of Adam Smith, 2nd ed. 2011, Chapter 6, Oxford University Press.

Stuart Kelly may not be aware of these facts and I hope he remembers them when next he writes on this subject.

Someone Needs to Read More Before Writing About Adam Smith's Ideas

“klukie” posts in Democratic UndergroundHERE and massages quotations to mis-report Adam Smith on his use “an invisible hand”, a popular 18th-century metaphor. [This continues my critical post on Klukie’s assertions made on Saturday’s Lost Legacy].

“klukie” writes:

“More important, many of Smith’s modern acolytes seem unaware of his cautionary warnings, especially in his earlier work, The Theory of Moral Sentiments, where (as a Stoic and a Christian) he stressed the fact that everything in a free market depends on a moral foundation of trust, honest dealing and, as he himself put it, “justice”. (He defined justice as not doing “injury” to others.) “There can be no proper motive for hurting our neighbor.” Smith was even a proponent of the Golden Rule and invoked the “invisible hand” simile in his earlier work to characterize our sense of charity toward those in need.”

CommentAs in the earlier quotation from Klukie on Adam Smith, this effort is a mixture of misinformation and misunderstanding of Smith on Justice. Smith's reference to Aristotle’s “golden rule”, “an [not ‘the’] invisible hand”, and an invention of our “sense of charity” is riddled with errors.

Adam Smith was most probably not a “Christian” or a “Stoic” (see my paper" "The Hidden Adam Smith in his Alleged Theology", Journal of the History of Economics. September, 2011). He lectured on Moral Philosophy at Glasgow University according the syllabus he inherited from the previous three Professors who held his chair. Universities were – some still are – like that. He had little leeway in expressing his own opinions. There was no freedom of speech in 18th-century Scotland. Indeed, it was risky to depart from the syllabus. The previous three professors, all ordained members of the Protestant Church of Scotland, were charged with “heresy” by the local Glasgow presbytery and, as watchful staff members also tended to attend his lectures and report on any dangerous ideas expressed by professors, it was not wise to give the zealots ammunition.

After he left his Glasgow professorship in 1764, he gradually relaxed expressions of orthodox Christianity in subsequent editions of Moral Sentiments, and in the last 6th edition, published just before he died in 1790, he made many excisions, inserted many qualifications, and dropped import statements of Christian doctrine (including a paragraph on the doctrine of Atonement). This suggests his childhood Christianity had gone, probably from his attendance at Oxford, 1740-46 (see Smith’s “History of Astronomy” Essay published posthumously in 1795).

Of the 13 statements on Stoic doctrine (in the syllabus), 12 are prefaced with reference to its doctrinal roots in classical Greek philosophy, not as expressions of his beliefs. Stoics were Pagans, not Christians, living as they did centuries before Jesus. Likewise with Aristotle’s ‘Golden Mean’ – still taught in modern philosophy classes – was in the syllabus, and corresponds to commonly held views on moderation in all things, and taught even today (for example, where did "Klukie" learn about the "Golden Mean"?

Smith was not naïve about markets in commercial society. In the main, they were and are not “free markets”. Markets in Smith’s day operated after three centuries of government legislation to create what he called a "mercantile political economy". His views of the Elizabethan Acts on Apprentices, Settlement, Guilds, and trade, many acts on tariffs, protection, prohibition, and the habits of ‘jealousy of trade’ in foreign affairs, determination of wages by local magistrates, laws against “combinations” by labour, lobbying of legislatures by “merchants and manufacturers” in their efforts to “narrow the competition”, all of which amount to an indictment by Smith of the realities of the non-existence of “free markets”.

For the record, Smith considered the abolition of tariffs in Britain as a “utopian” idea. He was not optimistic about the chances of “perfect liberty” in commerce, consoling readers with what he told the French Physiocrats about their ambitions for “laissez faire” that if such a condition was regarded as a precondition for progress to opulence, no country in the world would ever have made any progress in that direction. Smith, clearly, applied the “Golden Mean” to his view of markets!

“Justice” was defined in his “Lectures on Jurisprudence”, and was also part of the required syllabus, covering the emergence of the philosophy of justice from classical times. The definition of justice was not invented by Adam Smith, as ”Klukie” appears to mock (what does “Klukie” think university students learn from their professors?). Grotius and Pufendorf’s works were widely read in most European universities, in what is known as the “Natural Law” tradition. Not ‘harming’ one’s neighbours, as the definition of justice, goes right back to classical Rome. “Klukie” obviously is unaware of that, so I shall pass over his lack of appreciation of the widespread and understood classical teachings on justice, which, incidentally, are part of the foundations of US justice.

Smith did not “[invoke] the ‘invisible hand’ simile in his earlier work to characterize our sense of charity toward those in need.” The ‘invisible hand’ was a metaphor, not a simile. In his “earlier work” – The Theory Of Moral Sentiments (IV.1.10: 184) – he referred not to “charity” but to the “unfeeling landlord” who was “led by an invisible hand” to distribute to his serfs a share of the product of “his fields”, planted, tended, and harvested” by the “thousands” whom he employed (in feudal servitude), and he used “an invisible hand” as a metaphor to “describe in a more striking and interesting manner” its object, namely that mutual dependence (see Smith on the role of metaphors in his “Lectures in Rhetoric and Belles Lettres” [1763] 1983, p 29).

The metaphor referred to the obvious mutual dependence of landlords on their labourers which compelled them to feed the labourers and their families, because without food they could not labour for long, and the mutual dependence of the labourers on their landlords, because without labouring they and their families would not be fed, and would not live long enough to plant and harvest next season. “Charity” it was not! This is another absurd idea from “Klukie”, born of I know not what.

I have no idea what the “Democratic Underground” believes or its wider influence, but if this is an example of their knowledge of Adam Smith, then underground is probably where they will deserve to remain.

Sunday, March 18, 2012

And They Call it Journalism!

“Gordon Gekko’s famous proclamation in the movie “Wall Street” that “greed is good” is not all that different from philosopher and economist Adam Smith’s politer endorsement of the public value of private self-interest.”

CommentThis is so wrong, it is embarrassing, or ought to be. Gordon Gekko, a fictional character from Hollywood, is perceived by Susan Estrich (no further details in the post) to be “not all that different” from Adam Smith’s “politer endorsement of the “public value of private interest”.

From where did she draw that absurd conclusion?

Certainly not from any acquaintance with anything that Adam Smith wrote in his “Theory Of Moral Sentiments” (1759) or his Wealth Of Nations” (1776). Has she read either of his Works? Or has she relied solely on what some modern economists, and Hollywood script writers, have asserted?

She appears to mix up Adam Smith with either, or both, of Dr Mandeville (“Private Vices: Public Benefits, 1724), which Smith described as “licentious”, or the writings of Ayn Rand (1950s) (“The Virtue of Selfishness”, etc.,).

Neither of these had anything in common with Adam Smith , neither was his moral philosophy, nor his writing on political economy, in any way “a politer endorsement” of their “licentious” views.

Saturday, March 17, 2012

A Leftist Who Misreads Adam Smith

TO FOLLOW ALL 2083 POSTS
(AND COUNTNG) FROM HERE TO 2012 AND BEYOND, PLEASE USE THE NEW ADDRESS.

THANK YOU

Gavin Kennedy

“klukie” posts (17 March) in Democratic Underground HERE and HERE and massages quotations to mis-report Adam Smith on his use “an invisible hand”, a popular 18th-century metaphor (not a simile!) only twice in his published Works while alive, Moral Sentiments, 1759 and Wealth Of Nations, 1776, and once only as a noun, “the invisible hand of Jupiter”, in an Essay on the History of Astronomy, posthumous, 1795.

Adam Smith’s Psychology"

“The founding father of modern free market economics, Adam Smith, is best known for his famous simile in The Wealth of Nations (1776) about the “invisible hand,” which seemed to endorse a dark view of human nature. He wrote: “It is not from the benevolence of the butcher, the brewer, or the baker, that we expect our dinner, but from their regard to their own interest. We address ourselves, not to their humanity but to their self-love, and never talk to them of our own necessities but of their advantages.”

However, that’s perfectly OK. “Man…is led by an invisible hand to promote an end which was no part of his intention. Nor is it always the worse for the society that it was not part of it. By pursuing his own interest he frequently promotes that of the society more effectually than when he really intends to promote it.”

Comment
In neither case did the metaphor of “an invisible hand”, nor did his example of the nature of bargaining in Wealth Of Nations (Book 1, chapter 2, paragraph 2) “endorse a dark view of human nature”. Klukie has misunderstood Smith’s paragraph on bargaining (a common error among modern neo-classical economists of both Left and Right political stances).

Far from “endorsing a dark view”, his passage reveals an important aspect of seeking one’s self-interests: the necessity for “addressing” the other person’s self-interests, not just your own, if a positive conclusion to your bargaining is to occur. Unless your offer addresses the other’s interests, you will deadlock, which is a common outcome in bargaining between two egotistic parties. Neither wants to move, therefore neither gets what they want.

“… later on in his masterwork Smith even seemed to provide a rationalization for unvarnished greed and a no-holds-barred predatory economy when he commented: “In spite of their natural selfishness and rapacity… are led by an invisible hand to…advance the interest of the society...”.

Comment
Smith in Wealth Of Nations (WN IV.1.10: page 184) discusses “a proud and unfeeling landlord view[ing] his extensive fields, and without a thought for the wants of his brethren, in imagination consumes himself the whole harvest than grows upon them”. He goes on to say that the "unfeeling landlord" is obliged to distribute among those ”who toil in his palace and in his fields (“the thousands whom [the landlords] employ”) “that share of the necessaries of life, which they would in vain have expected from his humanity or his justice”.

Why did the landlords, “in spite of their natural selfishness and rapacity” share their harvests with the “thousands whom they employ”? Clearly, it was from their mutual dependence on those that labour. If they did not feed the labouring poor, and their families, there would be no “economy of greatness” for the landlords. No food meant no labour! No labour meant no food for anyone. Landlords had no choice. Even slaves had to be fed.

This did not mean the “rapacious” landlords ensured that their toilers basked in splendour and a surfeit of full rations; the distribution of food was left to overseers, not known for their humanity, not their gentle kindness (they mimicked their masters. The toilers received the rations their overseers considered sufficient.

The fact that Smith did not spell all this out did not mean he was unaware of the realities of life for the peasantry, and later, tenant farmers (let alone the realities of the “splendours” of Rome, Egypt, Babylonia and Asia for the slaves). Recall that his text of Moral Sentiments (1759) represented his Lectures in Moral Philosophy, Jurisprudence, and Rhetoric delivered to audiences of the sons of landed interests, the aristocracy, merchants and manufacturers, and bright lads on scholarships from Church ministers, legislators and the men of the law (from age 14 to 17).

“Klukie” writes in comparatively free societies, with protections of democratic rights and the law in the 21st century; 18th-century Scotland was not anything like that. I see no signs that “Klukie” is aware of the historical context in which Smith and others worked. Smith pushed out the boundaries of frankness about the realities faced by people in Scotland, and taught in the shadow of the ever-present “zealots” of the Church seeking “subversion” and “heresy” in whatever Professors taught their students. The three previous Professors of Moral Philosophy at Glasgow were all called before the Glasgow Presbytery to answer charges of “heresy”.

I will come back to rest of “Klukie’s” post (follow the links), which is of a similar misleading and partisan perspective of the Works of Adam Smith, ironically, a habit shared by modern neoclassical economists of a contrary disposition to that which “Klukie” would probably be sympathetic.

The Damage that Modern Neo-classical Consensus Does to Adam Smith's Reputation

Sanne Taekema and Wouter de Been (Erasmus University, Rotterdam. The Netherlands) have circulated a paper: “What Piece of Work is Man? Frans de Waal and Pragmatist Naturalism”

“In his most recent book on the importance of primatology for legal and political theory the focus of De Waal is on the neo-liberal consensus that has dominated economic, political and legal theory in the last three decades. This consensus hinges on a set of basic premises about human nature and human psychology. The basic unit of analysis is the individual. This individual is characterized fundamentally by rationality and by self-interest. In the market, according to mainstream economic theory, we can let this self-interest rip. Private vices are public virtues. If everybody pursues their own self-interest, then this will lead to optimal prosperity for all.”

CommentUnfortunately, this is exactly how modern economists think, and how they disparage those economists who do not conform. They often do this in the name of Adam Smith without knowing, or perhaps ignoring, that he did not hold to such modelling of human behaviour. Their imaginary economy for economics is a mathematical model that requires that important variables are assumed to be well behaved in order to produce firm predictions. Adam Smith acknowledged that we cannot assume that the variables, including real people, are well behaved to suit the “supposed beauty of [our] own ideal plans”. “We [cannot] arrange the different members of a great society with as much ease as the hand arranges the different pieces on a chess board” because “every single [individual] has a principle of motion if its own” (Moral Sentiments, IV.ii.2.18).

“In the public sphere, however, people are caught in a prisoner’s dilemma ― pursuit of their own narrow self-interest will lead to suboptimal solutions for all. Hence, in this context self-interest needs to be enlightened. Here, people need to cooperate to reach the most optimal solutions. As a result, it is in everybody’s self-interest to relinquish a bit of their freedom and autonomy to the state, so that the state can provide everybody with the benefits of a secure existence. Hence, the “social contract”, the imaginary bargain struck between free, self-interested individuals that define the conditions under which such a group of self-seeking loners are willing to pool their resources.”

CommentThis only resurrects the chessboard metaphor in another guise. So-called “enlightened” self interest is a tidy construct by assumption. Yet Smith spelt out the role of self-interest in Wealth Of Nations, not in a contract with the state, but in the actual day-to-day bargains between any two individuals attempting to bargain a contract for each achieving their own self-interest:

Adam Smith insisted: “But man has almost constant occasion for the help of his brethren, and it is in vain for him to expect it from their benevolence only.6 He will be more likely to prevail if he can interest their self–love in his favour, and shew them that it is for their own advantage to do for him what he requires of them. Whoever offers to another a bargain of any kind, proposes to do this. Give me that which I want, and you shall have this which you want, is the meaning of every such offer; and it is in this manner that we obtain from one another the far greater part of those good offices which we stand in need of. It is not from the benevolence of the butcher, the brewer, or the baker, that we expect our dinner, but from their regard to their own interest. We address ourselves, not to their humanity but to their self–love, and never talk to them of our own necessities but of their advantages” (WN I.ii.2: 26-7).

The key sentence is the last one:

“We address ourselves, not to their humanity but to their self–love, and never talk to them of our own necessities but of their advantages.”

In short, we achieve our self-interests by addressing the self-interests of those with whom we seek to contract. Two self-interested egoists would end in deadlock; they do not serve their self-interests by failing to address the self-interests of those with whom they would make bargains. The so-called “neo liberal consensus” is a dead-end. It does not describe reality nor any approximation of it. Sadly, modern economics is empty, brilliant as it mathematical models may be.

Frans De Waal is not party to the “neo-liberal consensus, and his work in primatology is outstanding, based as it is, on decades of observation of how chimpanzees behave. His book is worth studying as is Sanne Taekema and Wouter de Been’s critique of aspects of it (download a free copy from: http://ssrn.com/abstract=2009375).

I am reading widely in social-science subjects at present for my revised 2003 paper, "A Pre-History of Bargaining" on “Exchange: the first 200,000 years”, which I hope to present later this year at a conference on the History of Economic Thought around themes associated with Adam Smith and evolutionary thinking from Darwin’s “Origin of Species”. There is much in Sanne Taekema and Wouter de Been's paper that I would comment upon, especially in respect of their statements of Smith's "Moral Sentiments" (1759) and modern research; but I shall reserve that for future posts.

Paying For Gas With A Credit Card? $1 Extra Per Gallon, Please ...Laura Northrup in The Consumerist HERE http://consumerist.com/2012/03/paying-for-gas-with-a-credit-card-1-extra-per-gallon-please.html

“Since the amounts of cash "discounts" aren't regulated by the state attorney general's office, this isn't illegal and the stations won't be prosecuted. Let's hope that the invisible hand of the free market smacks the owners upside the head.”

Thursday, March 15, 2012

More Misleading Utopianism

“We examine sustainability through the lens of Adam Smith’s seminal work, The Theory of Moral Sentiments (1759), where he writes, “they are lead by an invisible hand to make nearly the same distribution of the necessaries of life…and thus without intending it, without knowing it, advance the interest of the society.” We will examine how the three forms of capital (natural, human and financial) are put into a new economic equation: Natural capital + Human capital = Financial capital.”

CommentIf we assume that the author of the above paragraph understands the whole original paragraph from which he/she selectively quotes, and we must assume he/she realises the limited context to which Adam Smith refers in his Moral Sentiments (1759). How much of that understanding is shared by readers of GreenAdamSmith? I expect very little.

Given that Smith refers to the entire history of farming in human society – from whence “Providence”, as he puts it rhetorically, first divided some of the landmass in parts of south- eastern Europe , roughly from 11,000 years ago, if not before, that is a large vista, indeed. Such a lengthy period covers the earliest humans emerging from hunter gathering when some of them (a handful?) began settling in relatively fixed abodes.

The rhetorical proposition was Smith’s means to make an assertion to illustrate why the owners of land did not, could not, exclude those left out of the monumental step to private property. Those who owned no land were employed in working the private land of those who owned it. In return, so Smith’s Parable goes, they received their share of the “necessaries of life”, by which Smith exactly that: sufficient to keep them alive and working.

What was considered as sufficient for life was decided by the owners, or more correctly, decided by their overseers, recruited from those who also had no land, but who were slightly more privileged, who distributed to the landless labourers what they considered to be “necessaries”. Their success in this work was conditioned by the millennia-long practices of being protective of their master’s fortunes and not the humanitarian standards of Smith’s 18th-century readers (think of the ‘humanitarian’ outlooks of Egyptian, Chinese, Babylonian, Greek, Roman, barbarian, and feudal ‘lords’, and the great landlords of post-feudal agriculture). Place outright slave labour into this mix and judge the likely non-opulence of their living standards.

And thus, the 9 millennia of farming did mean that the landowners, in the main, did what they did without intending it, without knowing it, to advance the interest of the society.

The nature of the exchange required an e xchange transaction that broadly worked. Landlords distributed to their labourers – slaves or free - sufficient to keep them and their families alive, for without food no work could be sustained no matter how badly they were treated; and without the labour of the landless (including the overseers), no “necessaries” would be received (no labour, no food; no food, no labout)

Smith’s proposition is matter of fact: the landless labourers, slaves or ‘free’, received enough necessaries to survive and to procreate future generations. Of the other elements of annual output – the “conveniences and amusements of life” – these were not accessible by landless labourers. Both landed and landless were in a mutually dependent relationship.

Some sustainability! Is that what awaits a modern ‘green’ utopia?

For the landless, once they had left off hunting and gathering, they were not much better off, in terms of sustenance and their daily consumption, than those they left behind in the first aged of humankind, so to speak. Some of their descendants, after the 18th century and through to the 21st century, entered, not a utopia, but certainly an era, still with us, of higher per capita consumption on a comparatively unimaginable scale in the market economy, an opulence not even experienced by the richest segments of the landowning populations of all the purely agricultural ages.

The richest kings, the most powerful emperors, never experienced access to the average “annual output of the necessaries, conveniences, and amusements of life” of the average earning labouring employees of the modern market economies today.

That GreenAdamSmith passes over these historical facts, and selectively quotes from Adam Smith, misleading its readers in the process, is a commentary on its candour. It is also a misleading comment on Adam Smith’s philosophy.

“The formation of the third count illustrates a reshuffling of paper control from weak to strong hands. This game is all about control. While history is repeating, it's highly unlikely that anyone other than "invisible hand" is accumulating today's ‘hook’."

“The most recent and local example of a politician who understands little more than Friedman's buzzwords is Toronto Mayor Rob Ford, who had expected that the invisible hand of the free market would hand over a billion dollars to build subways.”

Wednesday, March 14, 2012

More Wishful Thinking from Designers

Jeremy Rifkin (author of The Third Industrial Revolution: How Lateral Power is Transforming Energy, the Economy, and World) writes (3 November, 20ll – a very late post) in The Guardian HERE

“Saying goodbye to Adam Smith at the Dawn of the Third Industrial Revolution”

“The great economic revolutions in history occur when new communication revolutions merge with new energy regimes. The communication technology becomes the means to manage the increased complexity, flow, and reach of economic activity made possible by the energy mix.In the 19th century, print technology and public education gave rise to a print-literate work force with the communication skills to manage a coal powered, steam-driven, First Industrial Revolution. In the 20th century, the telephone, and later, radio and TV, became the communication media to manage the commercial life of the Second Industrial Revolution driven by oil, the automobile, and a mass consumer culture.: …

“… Every economic era is marked by the introduction of a new energy regime. In the beginning, the extraction, processing, and distribution of the new energy are expensive. Technological advances and economies of scale reduce the costs and increase the energy flow until the once-abundant energy becomes increasingly scarce and the entropy bill from past energy conversion begins to accumulate. The oil era followed this curve over the course of the twentieth century, peaking in 2006.

“While there is a fractious debate going on around the world about our debt-ridden culture and the need to live within our means, there is little serious attention directed to the ultimate debt we have incurred over the course of the First and Second Industrial Revolutions as a result of our profligate consumption patterns—our debt to the earth's biosphere. Climate change is the entropy bill— the planetary debt— for two centuries of burning fossil fuels to propel the First and Second Industrial Revolutions. What we thought was a growing store of accumulated societal wealth was really only the momentary enjoyment of goods and services made possible by the burning of vast amounts of fossil fuels and the release of carbon dioxide into the earth's atmosphere. Learning to live within the earth's budgetary restraints by not consuming nature's endowment faster than the biosphere can recycle the waste and replenish the stock is the ultimate test of our species' ability to live within the planet's carrying capacity. This is what sustainable economic development is really all about.

What, then, are we to conclude about the nature of gross domestic product (GDP)? We think of GDP as a measure of the wealth that a country generates each year. But from a thermodynamic point of view, it is more a measure of the temporary energy value embedded in the goods and services produced at the expense of the diminution of the available energy reserves and an accumulation of entropic waste. Since even the goods and services we produce eventually become part of the entropy stream, for all of our notions of economic progress, the economic ledger will always end up in the red. That is, when all is said and done, every civilization inevitably ends up sucking more order out of the surrounding environment than it ever creates and leaves the Earth more impoverished. Seen in this way, the gross domestic product is more accurately the gross domestic cost, since every time resources are consumed, a portion becomes unavailable for future use.

The changes taking place in how we measure and understand wealth creation are so profoundly disruptive to the way we have thought over the past two hundred years that spawned the first two industrial revolutions, it is likely that much of the classical and neoclassical economic theory that accompanied and legitimized these two earlier industrial eras will not survive the newly emerging economic paradigm.

I suspect that in the years ahead the still-valuable insights and content of standard economic theory will be rethought and reworked within the purview of a thermodynamic lens. Using the laws of energy as a common language will allow economists to enter into a deep conversation with physicists, engineers, chemists, ecologists, biologists, architects, and urban planners, among others, whose disciplines are grounded in the laws of energy. Since these other fields are the ones that actually produce economic activity, a serious interdisciplinary discussion over time could potentially lead to a new synthesis between economic theory and commercial practice and the emergence of a new, explanatory economic model to accompany the Third Industrial Revolution paradigm.Reconceptualizing economic theory is no longer merely an interesting intellectual exercise, but an urgent task if we are to develop the appropriate tools to expedite our transition into a post-carbon future.”

CommentI think Jeremy Rifkin exaggerates the role of Newton in Adam Smith’s thinking. He reported on the Newtonian impact on philosophy as an advance on what proceeded it in understanding the science and natural phenomena (see Adam Smith’s ‘History of Astronomy’, [1744-c.1758] 1795, posthumous).

Whether we think of three industrial revolutions or two is a choice about what we intend to say. And Jeremy Rifkin has an agenda, broadly known as ‘Carbonised Climate Change’, previously known as ‘global warming’ (what happened to that incarnation?). On a Universe-level scale we are talking about many tens of billions of Earth years, though in Earth-scale terms, we have (or our descendants have) several billion years left on Earth. Nothing on the scale of the Universe can stop what is happening to entropy because its causes are such that whatever we do on Earth is too puny to be a consideration. Only on the scale of billions of galactic activities, or lack of, will that final end to the Universe be decided.

But note how Rifkin is prolific on what is allegedly happening on Earth now and in the recent past millennia, and relatively sparse on the details of ”reconceptualizing economic theory” to “develop the appropriate tools to expedite our transition into a post-carbon future”. It is a fallacy, namely that “reconceptualizing economic theory” had anything to do with the social forces, puny as they were in the last five or six centuries, that led to the tentative commercial, non-agricultural, regimes that had appeared from c.11,000 years ago on the borders of present-day Turkey, Syria, Israel and Jordan and led to the mis-named “industrial revolution” in Northwestern parts of Europe, initially in present-day Netherlands and England.

Adam Smith did not ‘invent’ nor theorise about ‘capitalism’; his books were read by few people and not by all those directly involved for several generations in activities relating to what some call the ‘industrial revolution’ a sixty-plus years series of events that largely happened after Smith wrote Wealth Of Nations, and after he had died in 1790. ‘Capitalism’ is a word invented in English in 1854 by novelist, Thackeray, in 1854 (The Newcomes). If Adam Smith had never lived the world would still resemble what we have now. This world was caused by untold numbers of anonymous individuals acting under whatever motivated them individually to act. They didn't wait to be inspired by economists or anybody else.

Whether there were ‘first’ and or second’ industrial revolutions, and whether there will be a ‘third, we can be sure that ‘economic theory’ will have little to do with it. I refer readers to my post of last Saturday on Adam Ferguson quotation: “the result of human action, but not the execution of any human design”. Ferguson also, graciously notes that his now famous observation was influenced by Jean François Paul de Gondi, cardinal de Retz (1613-1679), whose ‘Memoirs’ were first published in in 1717. In these Memoirs, he quotes Oliver Cromwell on the “Fixity of men's designs and Uncertainty of their destiny” (see John Foster, Biographical Essays, 3rd edition, John Murray, 1860).

I do not hold much hope that Jeremy Rifkin's belief that some economists will have much of a role in his prescribed "urgent task" of designing mankind's destiny. Whatever is going to happen is already underway, or not, as the case may be. Cromwell and Ferguson have stated our prospects about right.

A Road to Riches

“When people try to think of ways to ease global poverty, they seldom mention migration. They tend to instead think of things like microcredit. There is nothing wrong with microcredit (the lending of small sums of money to poor entrepreneurs). It has lifted many people out of poverty, which is why Mohammed Yunus, whose Grameen Bank pioneered this approach in Bangladesh, won the Nobel Peace Prize in 2006. Yet, as Mr. Pritchett points out, the average gain from a lifetime of microcredit in Bangladesh is about the same as the gain from eight weeks working in the United States. After doing a quick calculation of the total benefit that Grameen Bank confers on its clients, he asks, mischievously: “If I get 3,000 Bangladeshi workers into the US, do I get the Nobel Peace Prize?”

Indeed. I give to Kiva.org regularly and I'm very happy to support the good work they do. Nevertheless, information like this makes me think about how much more effective my money might be. That, and how much richer the world would be if we were more open to foreign people working in our countries.

So: what charity can I give to that smuggles poor people into rich countries?”

CommentIt is an excellent piece by Sam Bowman of the Adam Smith Institute. It exposes, once again, the myth of racism being a rightist philosophy or that those inspired by Adam Smith are rightists. The fact is that examination of racist tenets exposes them as representative of the worst vestiges of leftist trade unionism, protecting “British” jobs and “British” customs (remember Gordon Brown on this subject?). Libertarians are not of the Right nor the Left.

Scotland welcomes immigration. and those who came here, and their children, are positive contributors to Scottish life and culture. In the field of cuisine alone, a most visible phenomenon of past immigration, Scotland abounds in restaurants supplying the cuisine of many countries. I regularly (at least when fitter) dine at Il Costello’s (Italy), The Kwok Brasserie (China), and the Voujon (India), all within half-a-mile of my home. It augurs well for our (hopefully) independent future.

The"lost" Life of the Rural Poor

A short description on Don Boudreaux’sCafé HayekHERE of the narrow horizon’s of the Medieval peasant caught my attention.

Move forwards half a millennia to the continuing spread of commercial society, commercial technological innovation, to the young (in historical terms) freedoms emerging in civil society, and the hollow romantic condemnations of the life of lowly ‘wage slaves’ in the first steps to 12-hour day waged-employment, and try to convince those involved to return to 16-hour backbreaking drudgery of farm labour for next-to-nothing in cash, and those so-called victims would have considered you both ignorant of the realities of the alternatives or mad. As the children involved, compared to their own parents, they feel liberated – even with a long way to go to join your living standards, but their children will be much closer to yours, and, perhaps, still moving on towards and past yours (compare in thirty-years time the Indian, Chinese, and Brazilian futures with the prospects for European children and grandchildren).

Extract from Will Durant’s, The Age of Faith (1950), page 557; here Durant writes about the typical medieval peasant:

“He shared in the social life of the village, but had no cultural interests. He could not read; a literate serf would have been an offense to his illiterate lord. He was ignorant of everything but farming, and not too skilled in that. His manners were rough and hearty, perhaps gross; in this turmoil of European history he had to survive by being a good animal, and he managed it. He was greedy because poor, cruel because fearful, violent because repressed, churlish because treated as a churl. He was the mainstay of the church, but he had more superstition than religion.

But this peasant was a locovore whose food (when such was available, as it frequently was not) was organic!”

CommentA BBC, longtime, experienced reporter from India commented on well-meaning western activists (the relatively priviledged children of middle-class parents) who ‘shamed’ a famous global sports brand by ‘exposing’ the 12-hour days for a pittance (by western standards) in wages of young children in Indian factories. The ‘exploitation’ was stopped and the children ‘freed’ to go back to from whence they came.

The BBC man commented that he saw the same "freed"children hanging about the road to town once again, not playing games. The young boys and girls, now unemployed from making footballs, were back at their prior lives soliciting as ‘rent boys’ and prostitutes for pittances from men in passing traffic commuting to town. He concluded they were better off being ‘exploited’ for low, but regular, wages making footballs; so were their parents. No thanks to the western activists they were sex workers, once again.

A story from Vietnam carried the same message. An adult woman was asked about conditions in near-by western factories making branded clothes for western markets for much less than the European minimum wages. She replied that it was a lot better than farm labour for 18-hours a day, and it was regular. It was also dry compared to open fields in rain.

I am reminded of the frailty of western activists experience in the current angst in Britain about its so-called ”austerity” budgets.Those alive during the second-world war and its aftermath know something of real austerity with rationing and without the common appurtenances of 21st-century life suffered by those affected (mobiles, i-pads, laptops, 24-hour news, colour tvs, cars, air-travel and cheap holidays to the Far East, etc.,). Amazing what a taste of prosperity does for one's perspective.

Back in the 18th century, when some of our ancestors experienced the early stirrings of the slow spread of commercial society from the so-called joys of farming and mining, Adam Smith observed what was going on and welcomed it as a liberating force, which, if continued, would lead to a shared opulence among the labouring poor. Smith took a long-view of history and, while not engaging in today’s activist idealism, he had a sense of constrained optimism about what was going on. It wasn’t that the garden as rosy; it was that conditions were emerging, despite the unintentional efforts of legislators to respond to the myopic visions of personal greed among those who influenced them, for a better future.

I suggest improvements in our comparative hindsight does wonders for our perspective. Clarity about the past is far more realistic than imaginations about a world utopia that will never exist. Study history if you seek a better future.